Heating Water with Precision [June 2012]

Tamal Chaudhuri, Managing Director, A.O. Smith India Water Heating speaks to Subhajit Roy about the factors that aid in taking A.O. Smith to the next level

A. O. Smith India @ a glance• A.O. Smith, one of the world's largest water heater manufacturers, entered the Indian market in July, 2008• In June 2010, A. O. Smith inaugurated its first manufacturing facility in India by inaugurating a 76,000 sq. ft. manufacturing facility in Bangalore• A.O. Smith offers water heaters with world-class innovative features like glass-coated element, patented Blue Diamond glass lining, energy efficient insulation, and custom colour options• Plans to complete its plant expansion by 2013 with an investment of $20 million
Please Brief us about the significance of the Indian market for A. O. Smith.A. O. Smith is going global now. We went to China in 1995 and today we are the no.1 player there. We feel that India may not be as big as China but is very much on the similar path. If you see the rate of GDP growth, India is definitely one of the fastest developing nations in the world. The robust growth in Indian economy has attracted us to venture into this market. We have entered the Indian water heater market in July 2008 and have already expanded to 12 key cities in India.
A. 0. Smith has a long standing association with the Indian market. When we first entered India with our breakthrough innovation Blue Diamond glass lined water heaters with our ColourMatch System, and glass coated elements, the Indian market was hugely dependent on stainless steel and copper water heaters. Today, our glass lined water heaters have become the market standard.What are your strategies in increasing the footprint in Indian market?The company was registered in 2006 and from 2006 to 2008 lot of research was being done to understand the consumer needs, problems faced on a day to day life. In addition, several research programs and focus group studies were conducted to understand market demands. Based on the feedbacks and results from the focus group studies, we started introducing products that provide lot of value propositions to the consumers. Glass line tanks, glass coated elements and colour options are the few value additions we did after the studies. A product that meets the aspiration of the customer is the need of the day and that's what our company values.
In terms of offering better technology, what sort of initiatives have you taken as Indian customers are value and price conscious? Research analysis suggests that a consumer spends lots of money replacing an element year after year. Leakages take place from time to time. Meanwhile we understood the customers’ needs which could withstand all issues and address all kinds of water. This led to introducing the glass line tank. Heating element is core of any water heater. The glass coated element is possibly the best suited to address the kind of water available. We were the first movers in India to manufacture glass line tanks and today it has become a standard in India. Our Blue Diamond technology, a patented technology stands out as the best in the market in terms of longevity and performance.
Could you tell us about your expansion plans?On an expansion spree, with the increasing demand for quality water heaters and premium services in Indian market, we are planning to add capacity in India to expand our product range of innovative water heating solutions. In June 2013, we will complete our expansion by adding an addition of 150,000 square feet to existing Bangalore facility. Our existing plant in Bengaluru was opened in 2010, spread over 76,000 square feet.As of now, 85 per cent of our sales comes from the products being manufactured in Bangalore plant. Once the expansion is over, the facility will produce 95 per cent of our India product range locally. We will be investing more than $ 20 million for setting-up this facility and adding few machines.
What will be your production capacity by then?Today, we have the capacity of delivering more than 4 lakhs unit per year in the 6-25 litre categories. We are expecting a production capacity of more than 12 lakhs units per year by 2013. We also plan to localise the production. Looking at the Indian market, we see lot of opportunities for more products and will be coming out with new products. Are you going to recruit more people?We plan to recruit more people to work on the assembly lines. As of now we are looking at 100. The extension of manpower would solely depend on the demand from the market and the kind of demand to be met. There would be a ramp up as soon as the demand increases.
We are investing for the future. More equipment would be brought in to increase the efficiency when required, though manpower is not directly proportional to it.
What are the major growth drivers for the water heater segment in India? Construction is the major growth driver in the segment, 15 per cent is replacement and 85 per cent is new construction which is directly proportional to the growth in the construction business. For A. O. Smith, we are not restricted to construction sector only; we would like to venture into new market segments as well.
You are into residential as well as commercial water heating, where do you see the maximum opportunities that will take you to a new level 5 years down the line?We see opportunities in both the segment. The commercial business is growing as the number of 5-Star hotels and healthcare facilities are coming up, there are opportunities to grow. At the residential level, it's definitely growing because of the increase in construction activities. So we expect growth in both the verticals.
What will be approach in increasing your presence in the commercial segment? Our biggest strength is the product range and the way we leverage the manufacturing facilities across the globe. We offer a value proposition to the customer. We offer the complete package of water heating solutions that are efficient in terms of quality, longevity and energy-efficiency.What kind of initiatives are you taking in developing technologies that are energy efficient?One of the things we are doing in this aspect is meeting the highest level of BEE standards. We have recently introduced the Air2Heat water heaters which generate heat from air, and are energy efficient. Considering the fact that in India specially Mumbai and Bangalore has lot of heat and humidity, the products operate well and has 60 per cent more efficiency in comparison to what is found in a standard water heater. The product is set at a higher price point but it is something that would be running through our channel partners.
So, how is the road ahead for A.O. Smith in India?Featuring quality, innovation and good after sales service, A.O. Smith will continue to make energy efficient products, 90 per cent of our products will be BEE 5-Star rated in a couple of months time. We will continue adding value propositions in innovative ways and will use after sales service as one of our biggest differentiator.

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